Self assessment explained

Written by Mark on. Posted in News

Self assessment tax return deadline day is a date that sticks in the mind of everyone who has to fill one in: 31 January. 

And since the 2020 deadline has now passed you’re probably going to put 31 January 2021 to the back of your mind. But we’d advice you don’t do that!

As an accountant for many years, I’ve seen many people relax in February after rushing to hit the deadline. They often vow not to do it next time.

Fast-forward to the following January, and they’re stressed out as they realise they’ve left it to the last minute again.

Our advice is to make sure you start on your self assessment tax return now! Seriously, if you have to file in January 2021 then you can start assembling much of your paperwork from 6 April 2019 to 5 April 2020 immediately.

What is self assessment?

Most people assume self assessment is only for the self-employed. That’s not strictly the case!

You must fill in a self assessment return if you earn income other than as part of a PAYE (Pay As You Earn) scheme.

That’s the official definition, but what does it mean? Simply put, if you are an employee and are paid a wage you don’t need to fill in a return.

However, if you earn extra money from outside your normal employment, you may have to! For example if you’re a director of a company or have a property to let you are eligible for self assessment.

Self-employed people also need to fill in a tax return. These days it’s very easy to fill in online, but many people prefer to use an accountant because any mistakes could be costly. In the worst case scenario, you could even face a penalty!

Here is a full list of the people who need to fill in a return:

  • Your self-employment income was more than £1,000
  • Your income from renting out property was more than £2,500 (you will need to contact HMRC if it was between £1,000 and £2,500)
  • You earned more than £2,500 in untaxed income, for example from tips or commission.
  • Your income from savings or investments was £10,000 or more before tax.
  • You need to pay Capital Gains Tax on profits from selling things like shares or a second home.
  • You’re a director of a company (unless it was a non-profit organisation, such as a charity)
  • You, or your partner’s, income was over £50,000 and you’re claiming Child Benefit
  • You have income from abroad you need to pay tax on, or you live abroad but have an income in the UK.
  • Your taxable income was over £100,000
  • If you earn over £46,351 in the 2018/19 tax year (£50,001 for 2019/20) and make pension contributions you may have to complete an assessment to claim back the extra tax relief you’re owed
  • You are a trustee of a trust or registered pension scheme
  • Your State Pension was more than your personal allowance and was your only source of income
  • You received a P800 from HMRC saying you did not pay enough tax last year.

How to fill in a return

The self assessment tax return allows you to report to HMRC the details of your income. Once it has been completed they will work out what tax you need to pay by 31 January the following year.

As well as income details, the return will ask you for details on dividends and interest on shares; records of expenses relating to self-employment; contributions to charities or pensions that are eligible for tax relief and records, such as a P60, for any tax you’ve already paid.

Before you do any of that, you need to register for self assessment if you’ve never filed online to HMRC before. 

Once you do that, HMRC posts a code to you. They never telephone so anyone calling you saying they’re from HMRC is bogus, so wait until your code arrives through your letterbox.

It takes around 21 days 

Once you log in, the online form takes you through the process and reacts to your answers. Take your time 

For more information, visit the self assessment page on the HMRC website.

When should I fill in my tax return?

As soon as you can. It’s more likely you’ll make a mistake if you rush, so don’t leave it until December or January. 

If you use an accountant, make sure they have all your paperwork as close to 5 April as you can. And it isn’t about making your accountant’s life easier! If you know how much you owe you’ll have more time to collect the funds to do so. A late return could mean you owe more than you expect.

Also, if you don’t file your return by 31 January, you will face a £100 penalty. You’ll receive another penalty after three months and then £10 A DAY after three months! It’s really not worth delaying.

Ultimately, self assessment shouldn’t be a big issue. At Concept Accountancy we like to make sure our clients don’t leave things to the last minute.

If you’re ever unsure or need advice, we’re always happy to talk to you about your self assessment tax return. We are based on the riverbanks of the Tyne in Newcastle so close enough for you to arrange a meeting. If you need to talk to us contact us today.

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Concept Accountancy

23 Riverside Studios
Amethyst Road
Newcastle Business Park
Newcastle upon Tyne
NE4 7YL

0191 603 1760

Registered in England and Wales

Company number 07960449

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